Section 235 of Companies Act - Power to acquire shares of shareholders dissenting from the scheme or contract approved by the majority

Introduction

When a company acquires shares or gets assent from not less than 90% of shareholders of the transferor company, then the transferee company has right to acquire the balance 10% shares from the shareholders those who dissent from the acquisition offer made by the transferee company. Thus section 235 of Companies Act, 2013, has given the procedure and power to acquire those shares subject to the approval of Tribunal.

Procedure to acquire shares of dissenting shareholders

When a contract or scheme to acquire shares made by the Transferee company (Company which give offer to acquire the shares of another company), to the Transferor company (Company which accepts to transfer the shares of the company), if that contract or scheme of acquisition accepted by 90% or 9/10th of the shareholders of the transferor company, other than the shares already held by transferee company in its own capacity or by any nominee or by its subsidiaries, within 4 months of making the offer, then the transferee company within 2 months of expiry of the above said 4 months, can give notice in form CAA 14 to the shareholders who have dissented to the offer made by the transferee company.

Ref: Section 235(1) of Companies Act, 2013.

Application by dissenting shareholders to the Tribunal

• When a notice under section 235(1) is received, the dissenting shareholders can make application to the Tribunal within 1 month of receiving notice from transferee company.
• If the Tribunal thinks fit, it may pass the order in favor or against the dissenting shareholders.
• If the Tribunal passes the order in favor of the assenting shareholders or rejected the application of dissenting shareholders, the dissenting shareholders are bound to follow the contact or scheme approved by the major shareholders of Transferor company; or
• Where the notice given under sub-section (1) of section 235 and the Tribunal has not made any order on the application received, the transferee company shall upon the completion of 1 month of giving the notice; or
• If the application is pending for order in the Tribunal, upon the disposal of application, the Tribunal will send the notice or order along with the instrument of transfer to be executed on behalf of the dissented shareholders by any person appointed by the transferor company or transferee company on its own behalf for the purpose of transferring the shares of dissenting shareholders.
• The Transferee company should pay the consideration for the shares of dissenting shareholders to the Transferor company.
• After the payment to transferor company, the transferor company will get registered as the owner of the shares of dissenting shareholders.
• The Transferor company will inform the dissenting shareholders about the registration and consideration received within 1 month of receipt of consideration.

Ref: Sub section (2) and (3) of section 235 of Companies Act, 2013.

Consideration and payment to the dissenting shareholders

• The amount received under section 235 should be deposited in a separate bank account.
• The amount received by the transferor company will be considered as an amount held by a trustee.
• That amount should be distributed in the manner of their entitlement to the dissenting shareholders by the company within 60 days.

Ref: Sub section (4) of section 235 of Companies Act 2013.

Conclusion

Section 235 of Companies Act, 2013, gives the power to the majority shareholders to transfer the entire shares of the company if 9/10th of the shareholders assented to the scheme, subject to the approval of Tribunal if any, thus minority shareholders have very minimal role to play when the majority decides to transfer the shares. The Tribunal will consider the application when there is any oppression from the part of majority and any other criteria which makes the scheme illegal or invalid in the opinion of the Tribunal and then passed appropriate decision it thinks fit. Moreover, the will of majority always prevails subject to the Order of Tribunal if any applies.